How cryptocurrency lives and dies by the same sword – causality

When a single entity controls the majority of a network’s mining power (hashrate) it is vulnerable to a 51% attack. This is when the entity adds its own transactions to the blockchain fraudulently. This could be an organisation or a group of miners. It is difficult to find the culprit because it is done anonymously. This possibility is normally hypothetical though. Having a majority of the hashrate does not automatically mean that it will be used to criminal ends. On this and other occasions however double spending was detected and significant losses sustained. Double Spending

Double spending is a bit of a strange concept.

To help understand double spending, think of cryptocurrency as a gift voucher or debit card. Once spent or redeemed it becomes worthless. However, imagine retaining the balance of your gift card’s value after it has been redeemed, allowing you to spend it a second time. That would be double spending.

Double spends are actually quite hard to pull off. They originally designed Bitcoin to make double spends impossible owing to the wide distribution and large number of Bitcoin miners. However, if a large group of miners were to join forces, such as has occurred in China, this is no longer an impossibility. Having said that, the attacker can only modify transactions in the past few blocks, not the whole network. This is with the aim of claiming the mining rewards. The processing power you would need to even do this is massive and so very costly. So there are really only a few scenarios where it’s worth the effort. Unless, of course, financial gain is not the intended outcome.

If you are sitting there thinking that you would like to pull off a 51% Attack of your own, there’s a market place out there just for you. Nicehash was launched with the purpose of trading mining capacity, so if you were to rent enough computing performance you could attack the blockchain. The question is how much you’d have to spend. Crypto51app has obliged with a website that shows exactly how much. Neither has malicious intent though. In the case of Nicehash it’s really only Airbnb for crypto. If you’ve invested a ton of cash on CPUs, GPUs, ASIC machines or a rig farm it may provide you with an income stream. Conversely, if you don’t want the outlay it gives you mining capacity. This is really useful, for example, for a new coin wanting to stress test its network without going to the expense of purchasing additional hardware.

The jury is still out but the general consensus is that 51% attacks could only be prevented if the incentives for honest mining were greater. One such means would be to pay miners more which would result in the rent of mining capacity increasing. The problem with this is that most cryptocurrencies, especially those most vulnerable to attack, can’t afford to do so. The other approach would be to encourage merged mining. However, this involves a lot of work and hence cost to set up. At the end of the day, the principals of openness, transparency and anonymity are a mighty sword and the key to the success of cryptocurrency. Unfortunately they are also its vulnerability and so could be responsible for its demise. How can Sentiment Analysis help?

News of the 51% attack on ETC exploded onto social media on 7th Jan 2019 (UTC). As you can see in the chart above, the hourly change in the volume of negative posts about ETC spiked on Jan 8th, hitting a high of over 300%. At that time, the price of ETC was hovering around $5.12 USD. In a response to the news of the attack many exchanges froze trading of ETC. Not surprisingly, once ETC trading had fully resumed on Jan 10th the price of ETC had plummeted to $4.36.